dragonLZ (99.31)

One question I have for Bears...

29

Pretty much 99% of the Bears on this site have been saying for 15 months now that one should stay out of the market because the economy stinks.

If you read their blogs, they all pretty much say "One should only invest when employment is going up and the economy is doing great. No good economy, no reason to invest. Listen to us, you'll lose your money." (OK, they also say invest in gold).

So here is my question for the Bears:

What was so much better back in 2003 that justified the incredible bull market that lasted four and a half years, from March of 2003 until October of 2007?

As you can see in the chart above, S&P went up pretty much in a straight line, and it gained 85% during those four and a half years.

So what is it that was so great back than, if based on your theory, markets go up only when the economy is doing great?

Didn't we have 9/11 which brought the world's economy to a halt? For years.

Wasn't everybody scared terrorists will strike again so the travel and leisure industry got killed during those years?

Didn't U.S. fight two wars at that time (the second one, Irak war, started in March of 2003), and didn't we all know there was no money to support those two wars?

Didn't we all watch in 2003, 2004, 2005,... how local manufacturing plants were closing on a daily basis? Some for good and some because they were moving to Mexico or China.

Remember outsourcing?

Globalization anyone?

NAFTA ringing a bell at all?

So please, please help me understand what was so great back in 2003, 2004, 2005, and 2006 as I'm very, very confused about your theory that money is to be made in the stock market only when the economy is booming.

We DIDN'T have a 'mini-crash' in 2003We DIDN'T have a failing EURO in 2003We DIDN'T have a Bear-Stearns, etc. collapse in 2003We DIDN'T have government stimulus money about to run outWe DIDN'T have worldwide deficits at a boiling point

There is only so long that the economy can sustain itself on borrowed money before the money runs out ... that wasn't in 2003. That is now.

Housing had been stagnant for nearly 20 years in 2003. The bull run from then to 2008 was fueled almost entirely by the housing boom and subsequent bubble. That's what's different. Housing is still unraveling from that mess. That's the major difference. People used their houses like ATMs and the banks let them. We'll they've tapped it clean out, and there is no other place for them to get money. In fact, banks aren't doing any lending right now. All housing related lending is being backed by Fannie Mae and Freddie Mac, which are insolvent.

I am a bear, but never a perma-bear gold bug Libertarian as many are on this website. My models indicate substantially more downside risk than otherwise. But I'm not one to believe we're on the brink of the apocalypse. Wouldn't be surprised if some people here were dispensationalist Christians fitting world events into their preconceived beliefs.

Our economy is incredibly fragile right now. Things have improved from last year, but it is very very different right now than in 2003, or any other recession short of the depression itself. There is some upside from here, but there is still considerable risk that the carpet gets completely pulled out from under us.

Is there possible upside in the market from here? Sure. Absolutely. We've come down some from 1200. There is some reason for optimism. It can go down from here as well....A LOT. Frankly, DragonLZ, you are the scariest person in CAPS to me. You constantly tout high beta (some junk, some quality) stocks that go up rapidly in good time and down rapidly in low times. Yet, you've said yourself that you don't have a lot of real money in the market. Playing CAPS that way is a way to get a lot points. Playing the real market that way is a good way to put yourself at a higher than necessary risk ratio. I suspect there are a lot of people that look to emulate you. You have a high CAPS score and a bold methodology with lots of bravado. It's exciting to throw caution to the wind. I play CAPs the way that I play the market......aggressive, but with full understanding of the fundamentals of both the underlying stocks and the economies underneath them.

I agree...#3. We were building a bubble. To claim that we'll run right back up to Dow 14K and beyond is far fetched. The economy is being supported by gov't deficit spending for a time, but the HELOC ATM isn't coming back...and that was driving consumer spending and corporate profits for years.

#3 answered your question I think. We had a run up in housing that fueled everything else. But there is lending now--it's just tougher to get. You have to do strange things, like prove your income and your ability to repay the loan and even the value of the assets you are using as security. Imagine that.

Seven years' worth of growth gone for four of the top worldwide economies is pretty bearish. Many large companies have seen a good string of earnings rebounds for over a year now. That's pretty bullish, except they had to cut deeply to make it happen. Many, especially banks, homebuilders, and real estate, only posted good earnings due to stimulus and accounting changes.

If mark-to-market were reinstated today, how bullish would earning look?

Though a bear, I added longs on Friday, even though I think we could break below S&P 1,000 over the next few months. I believe 1,219 was the top for 2010, and probably longer. Very short-term, like the next two weeks, I think 1,150 could be retested. I'll look at shorts again at 1,120 and add pretty heavily if we get above 1,150.

However, you are telling me something we know NOW. But what about 2003?

Was it in the news that the new bull market was just starting? That economy was doing just fine? No worries about the future?

That's what I'd like to know. Not why we had the bull market from 2003 to 2007. Everybody knows that NOW.

What you are telling me sounds to me just like what somebody will be saying 5-6 years from now explaining why we had a bull market from 2009 to ... (if this rally continues).

"You know, government was giving out free money back in 2009 and 2010. There was Cash for Clunkers, then $8,000 credit for first time homebuyers. Banks were given tons of money. Goverment pumped trillions into the economy..."

What I'm questioning with this post is whether investing should be done only when the news are good (that's what I get from bearish posts).

What happened to "Buy low, sell high" or "Buy when there is blood in the streets"???

I'm not a perma bear, that much is for sure... In fact I was pretty much "all in" heading out of the March 09 Lows.

But as time progressed I became more bearish based on how I saw this "recovery" proceeding....

I haven't seen stimulus funds going into any kind of long-term value creating endeavours... Instead its been short term things that keep people (temporarily) employed. Remember all those 8 hour "jobs" that were created by state governments?

We've squandered BILLIONS of dollars fixing the balance sheets of "banks" (I use that term nearly sarcastically at this point) only to have them use it to fuel a market rally of historic proportions. What exactly will be the ROI on that? Will it have any follow through in terms of creation of lasting value?

The way I see this whole debacle was an opportunity. It was an opportunity to press the reset button and restore some balance to trade relations, to rebuild elements of our economic engine on the cheap and to re-invigorate the American middle class in a sustainable way. And I think that we've missed out on that opportunity so far...

I say so far because I am starting to think that we've got a tough road ahead and it might still offer us the chance to set things right...

If anything you can call me a Panda Bear, or a Koala Bear... because while I am bear on the present I am still hopeful for the future (foolish as that may be)...

Sorry, forgot to address the question of 2003... If you zoome out your chart a bit you will see that all we've had is volatility for the last decade or so. 2003 was just a (temporary) upward inflection point.

It was clear to me then that is was all fake once people started accepting the "jobless recovery" tagline.

It was business as usual for some while the rest were left to find some way to make money (housing)... This is not the stuff of meaningful recovery as evidence by what happened a few years later.........

"What was so much better back in 2003 that justified the incredible bull market that lasted four and a half years, from March of 2003 until October of 2007?"

#3 answered it. Alot of jobs got displaced as a result of the bubble bursting. The real question is where is the future growth to come from to absorb the unemployed back into the working force. Perhaps as the boomers retire (those that can afford to anyway) jobs will open to some extent.

There will always be individual stock opportunites, regardless of what the overall market is doing. What the index will do itself time will tell.

Why ask why? Time will tell, and I have a decent amount of confidence that we will see deflation, as we have seen recently, and will continue to see. Less people paying off loans makes rate go up, makes money less available, makes deflation. You never got the sense your beloved rally, deserving of so much respect it just never seemed to receive, was based on nothing except manipulated data? And if you are in a hurry to believe manipulated data... Well I could just tell it like it is, but I'm trying to be nice here. Nope... that won't work. Your a stupid sheep wiggling your butt in the air! Sorry! But I will apply the nations New Theme for the decade: "It is what it is".

Another aspect to this rally (one I personally enjoy) is that it was the fear of the reality of the situation that made stocks rebound. People started thinking of the implications of further crash, and as a kneejerk 100th monkey response, they bought as soon as they saw others in the pasture eating grass again, in denial of what was (and is still)in the process of taking place. Because you cannot envision a world changed, the world cannot be changing. Right? Wrong. The Human race on the whole has determined how much patience it had with your heads shaking vigorously, and your hands over your eyes in response to the prospect of a paradigm shift in the economic landscape. It had about 15 months. I understand why you would never want to leave sugar mountain, but snap out of it! the jig is up!

Now as much as I am tempted to go through a twelve days of christmas with a theme of why now is different economically, Seven countries warring, six Investment banks investigating, 5 bailed out PIIGS....., 4 earthquakes, 3 volcanoes (Slight exaggeration), 2 oil spills, And a nice insurance settlement for RIG, It isn't necessary. You gotta really wanna believe that this system is going to continue, and I can't and don't want to help those who have perpetuated and cannot imagine a life without this economic system where kill or be killed wears a three thousand dollar suit, and politically correct is paying respect to these parasites.

It is the largest lie in human history. That you cannot envision a better system of economy and government seems to be a lack of imagination.

Being able to spot similarities in religious text and current events will become easier and easier, and there's nothing I can do about that, except observe. It still does not in any way validate the changes that were made in the other areas of the Bible, and you could call me a religious whatever, but it would not ruffle my feathers 1 iota, Beta. Time is on my side.

By the time anyone realizes something was fixed, the market would have priced in every part of the "fix". If you're on the side of attempting to outperform the market, you would fail if you simply wait. Most investors, however, are passive -- and waiting to reduce uncertainty and simply earn the market return may be a wise idea.

In either case, unless there is a risk of a loss, then don't expect to be rewarded for it.

DragonLZ, that's just the whole point. Each of the last couple of recessions have been "solved" by credit bubbles. The 90s recession was "solved" by the dot-com bubble where people were using the runup in the market due to the dot-com emergence and trading on margin and running up the values of stocks and using the money to fuel the economy. The 2003 "recovery" was based on loose credit, particularly in housing where people were allowed in some cases to use up to 120% of the value of their house. The subsequent runup and bubble burst put us in our current situation. The problem is that the government has been running a deficit for this entire time, actually contributing to the runup. There aren't all that many more triggers to pull.

What can the bubble be based on, you ask? Geez. I just can't think of anything. That's why I'm not bullish. Where can you go for money when no one has it? I wonder if there were some people asking the same questions in the early 1930s. Some of the most successful investors of that era got crushed....not in the initial crash.....but in the subsequent fall after the "recovery".

Here's where I've been. I was in index funds at the drop last year. Bought in at 1100 and again at 900 at "huge bargain prices". I had virtually no cash left when we hit bottom at 600. Bought a small amount of individual stocks at the bottom and commodity stocks. Eventually, by October I was in all Chinese stocks and enjoyed a great runup into March of this year where I sold 75% of my positions. I'm currently 50% in and 50% out, all still in Chinese stocks, some that I bought on the recent drop. There are now a few U.S. small caps that I'm watching with interest. This is all in my short-term portfolio.

401K, ROTH and all other long-term portfolios are completely diversified in large, small, and foreign stocks....always 100% stocks.

I'm willing to miss out on a fast pop from here on 50% of my short-term portfolio to preserve dry powder to have ready to take advantage of better opportunities. My problem right now is that my favorite stocks aren't as low as I'd like to get them and the ones that I hate aren't high enough. If this thing pops up in the 1200s again, I'll be looking to short stocks for the first time in my investing experience. If it drops below 1000, I will be looking to selectively purchase stocks. Anything in the middle right now, and I'm going to watch closely.

Now as before the industry is one of the economy’s central sectors, even though its outstanding importance has decreased in favour of other economic sectors in recent years. In 2005 it contributed about 23.4% to gross value added in Germany.

The statistical surveys also cover the manufacturing handicraft in addition to industrial businesses as such. That is why we use the term manufacturing trade below.

Short-term information is collected by monthly reports and monthly production surveys, providing recent data for business-cycle analysis and basic information for index calculations. The most important indicators used to describe short-term economic developments are the index of incoming orders as well as absolute figures on employment, remunerations, hours worked and sales. These surveys are supplemented by quarterly production surveys in the manufacturing trade. The production index, in addition to the manufacturing trade, also covers construction as well as energy and water supply.

--------------

Production index in production industries, original values, 2005 = 100

"What happened to "Buy low, sell high" or "Buy when there is blood in the streets"???"

After a 70% gain in the stock market, I do not believe we have "blood in the streets".

"By the time anyone realizes something was fixed, the market would have priced in every part of the "fix""

Most bull markets run for 5 years or more. It would be silly to say it is all "priced in" when it is "fixed". There will always be ups and downs in ISM, employment, growth rates, etc. But it is silly to invest if you believe things will be worse in the future in the medium term rather than better.

I am saying that "production/manufacturing" is not all that important, not even for Germany, that "production/manufacturing" has recovered quite nicely and that it might keep recovering for quite some time.

Pretty much 99% of the Bears on this site have been saying for 15 months now that one should stay out of the market because the economy stinks. If you use technical charting as well as fundamental analysis (as I do) of Individual companies In relation to the current and future maro=economic outlook with regard to the direction of the equities markets,It Is posssible to make money no matter which direction the markets are heading. I am neither a PERMA bear nor a PERMA bull EVER.... I try to use the Information that Is available to make an Informed decision on whether or not to stay fully,partially{,or not Invested at all} In the market (s) In the beginning of March I had just $ 500.00 In cash and roughly $89,000.00 In the stock market. I currently have about $34,000.00 In cash,and every time the market pops,I unload more shares. When Investor sentiment changes,I change with It,and as a result,I have retained a lot of my gains that I had In the preceding 6 months. To be a PERMA BEAR or a PERMA BULL Is Illogical, especially In this era of economic uncertainty. Remember this one statement.... WALL STREET DOES NOT LIKE UNCERTAINTY, and at the present time we are faced with Increasing uncertainty with regard to this "Global Economy".... :) TS

Oh man. where to begin. The 2002 and 2009 bottoms are not very analogous at all. For one 2002 was not a credit crunch.

I wonder how many of you guys were trading the market in 2003. One thing you can never tell on CAPS is how much someone really knows, or how long they've been at this. I've been in this for a good while, but that doesn't mean I know anything. :) I do however remember that time period fairly well.

FWIW 2003 actually that was a very very good year for me. 2004 gave me fits but 2003 was easy stuff. I'm actually more a bull by trade although you'd never suspect it by looking at my CAPS port. I nailed that rally and went 100% long.

Anyway from my recollection 2003 was one heck of an easy rally to spot coming not as easy to play as 99 was but pretty easy. IBD claimed they got bullish in October 2002. If memory serves they actually took out an ad in the USA Today saying stocks were too cheap. So I wasn't the only one, I suspect most traders got in on that one.

Wrong decade DragonLz. That was primarily a 90's thing. The 2000's was when manufacturing didn't rebound stateside as it typically would at least not in the states that Union friendly.

Texas and other "right to work" states saw some come back but places like my home (Ohio) did not really.

>>Didn't U.S. fight two wars at that time (the second one, Iraq war, started in March of 2003), and didn't we all know there was no money to support those two wars?

The day the Iraq invasion was announced the market went just nuts to the upside. It rallied like crazy all week and really kicked the nascent rally into high gear. You might be surprised but that made sense given that the street expected the Iraq war to simultaneously lower unemployment and jumpstart defense companies.

The beginning of a what was expected to be a very short war vs year 8 of a war with seemingly no end and streams of wounded underpaid veterans is a pretty different scenario.

Anyway so what was different about 2002-3 to the rally we just witnessed/witnessing? here's what comes to mind from memory (please forgive me if I make some mistakes I don;t have the date in front of me)

Market Internals

1- Market Volume grew and grew as the rally rode on. The opposite has been true for this rally. As a fan of the volume story you know how important this this. yes individual names have been getting interest but overall volume isn't really there.

2- market breadth was strong- One of the oddities of this rally is how at times a huge % of the activity has been focused on ten or less stocks. That's the opposite of what you like to see. Citigroup in particular has been heavily active the whole time. That has been strange

3-Quality of Liquidity- retail investors were a much bigger force in the 2003 market than they have been so far here. HFT trading houses were unheard of. The Buy and Hold crowd was much more active than they are today. Each move up felt more solid as there

4- The "Poo pop" has gone on way longer than normal. Based on research I've seen (and personal experience) most rallies start with a massive blast up in junk names, but once that reaches equilibrium rallies typically transition into more fundamentally sound names of rapidly growing EPS companies. That really hasn't happened this time. large caps should be leading in year two of a rally as it consolidates for another small cap charge in its' third year (although higher quality small caps). Yet many low quality small cap names are still flying. That's Very Abnormal. This did however happen in 2003. 2004 was a very sideways market, but it was one where quality names did well.

none of these factors were as dynamic as the 90's rallies but they were convincing. (1999 was just ridiculous)

Economic

-Consumers- In 2002-3 the jobless rate never got nearly as bad as it has now. They also carried far less personal debt relative to income compared to now. People did not change their retail habits much and were in fact cheered onward by those buy American ads around the 9/11 tragedy,

-retirement- while there were massive fights in congress about social security. baby boomers for the most part still felt they had years left in the market and actually some wanted Social security to be replaced by an IRA type personal account. That isn't really true today as many boomers are now cresting into retirement

-housing- the real tragedy of the 2002-07 rally was that it was propelled by a bubble in housing. Since their house is the majority of the average american's wealth a downturn in housing is a very punishing event. last I looked Americans have not been this immobile in two generations,some literally trapped in houses they cannot sell without massive loss of wealth. Cheered by the mania many people lost their life savings, credit score and shelter all at once. That was a far more scarring event than having your 401k get clobbered which was all 2000 did to most Americans

-Job loss- In 2000 the job losses were more sector related in nature. In 2008 they were across the board and in many cases in industries most people thought as fairly stable.

-job growth- although many felt that new growth was pretty anemic for a rally in 2003 it did eventually come and it was readily evident already by this point. 2002-2007 was not a great job producing rally but it got off the ground a lot faster than this one has. yes job loss has basically stopped , but I've yet to see signs of robust job growth.

-credit- The credit markets never really got that tight. A lot of VC firms and PE guys got roasted by 2000 but everyone elses outside of Silicon valley it wasn't that bad. And Greenspan opened the floodgates with insanely low interest rates. Now no one can get a loan for about anything and credit card lines are being chopped left and right. Another factor was the consumer wanted more credit in 2003, now many don't. So there is a credit contraction factor that we did not have then, and it is a very significant one. This really restricting growth

.-luxury- Luxury items were still in high demand in 2003 and when the market rebounded, people flocked to high priced goods and services. There was far less culture of coupon cutting and thrift like there is now. Family Dollar (FDO) and Wal-mart (WMT) for instance were not good stocks in that rally but Whole foods (WFMI) and Williams-Sonoma (WSM) were.

new leadership- In 2003 the best new growing companies were US (Taser, Travelzoo etc), in 2009 They were predominantly Chinese and other BRICs. Most the US stocks that have done well are recovering ones not new growers. That's a horrible sign. if this rally is to continue we must see more CANSLIM EPS growing US equities soon.

Gov't-

The 2003 rally was artificially induced just like this last one was, but it took far less drastic measures and was more gradual to get it to respond.

And the big difference was that consumers directly got the injections through rate cuts. This time the banks got all the injections and they've hoarded it to cover their bad assets. It hasn't circulated to main street at all.

The federal gov't's balance sheet was also far less precarious than now. deficits were comparatively small, tax cuts were fresh. medicare D and other major spending programs had not happened yet to my recollection. So there was a general feeling that we had plenty of options if we needed to use them.

Now to be honest I don't know what options the FED has left if we get in trouble again. We are in uncharted territory now (for the US anyway).Plus the economy seemed more responsive to stimulating actions (such as rate cuts)

Investors also felt more confident of what the gov't would or would not do in a crisis. Now no one knows. Short selling bans, nationalizing Fannie and Freddie, Too big to fail, the discount window, quantitative easing are just a few things that would get you laughed out of the room by traders in 2003. It was completely inconceivable back then. Invetsors's faith in the markets are badly shaken and buy and holders are very rare compared to what I'm used to seeing. It won't take much to send them to the exits again. Few have the patience for LTBH anymore.

Miscellaneous-

It should be noted that the 2000 crash was not a financial panic and it felt a lot less scary to many wall streeters than 2008 did. Psychologically I think that makess a big difference. 2008 hit everybody and their mother, but more importantly it actually hit the guys who primarily comprise the market itself. The very market itself appeared to actually break after lehman , there were no scary "no bid" days in the 2000 slide. It was a much more orderly affair. fall 2008 was some seriously scary stuff.

There also were no single day flash crashes in 2000. Just your more garden variety ones. :)

A credit crunch is much different affair from a more benign overpricing like 2000 was.2008 was a credit crunch and as such ought to be compared to other ones.

So could this rally continue? absolutely! if the earnings keep beating the street I see no reason why it won't. Earnings (especially perceived future earnings) after all are pretty much all Wall Street cares about. But you cannot tell me that this rally is anywhere near as fundamentally supported as the 2003 rally was. At least not yet. Which is an odd thing to say given its' size, but the data is what the data is

.I think all we can say for sure is this perhaps the most massive oversold rally of all time. Now it's up to the economy to live up to the growth the market expects.

And that's where the bear point of view typically comes in. Most bears are of the opinion that stimulus is not producing real sustainable organic growth and that new debt is basically ineffective at creating GDP growth. The bears are saying there is going to be a miss once the stimulus runs out. I guess we'll see.

This fall ought to be interesting.

And that's what I saw differently in 2002-3. I saw the economic picture improve in the private sector and I saw growth coming. And that's what I haven't seen convincingly yet. It's stopped falling sure, but it sure isn't growing much out here on main street. And until credit loosens up I have a hard time seeing how it can.

Awesome response! I'm giving this blog a rec in hopes that people will read what you added to the conversation. I think you should copy and paste that as its own post. A lot of people could benefit from reading what you just wrote and many of them likely won't scroll to the bottom of this thread to read it. Thanks!

You are the only one who answered my question. All the other guys were telling me why 2003 was different/better than 2009 from today's perspective.

What I wanted to know is was there a writing on the wall back in 2003 that told us a new bull market just started? Did everybody say "Economy looks great, employment is even better, let's invest like there is not tomorrow." I don't think so.

OK, you say there was a writing on the wall (in IBD), and you nailed the 2003 bull market (so did I), but believe me, that's only because you are a bull.

I can bet you any amount of money that these same bears that were "very careful" about the 2009 market were also "very careful" (read: sitting on the sidelines) back in 2003.

You know why most retail investors are mad at the market (and you can tell they are very mad if you read bearish posts)?

Because they tend to wait for the good news before they get into the market. Unfortunately, that's exactly the time when the smart money starts selling.

Of course, our "very careful" friends sell a year later, at the bottom, and the cycle continues...

Because I said I nailed 2003 bull market (I bought AKAM at $1, ASK - remeber Ask Jeeves - at $1, SINA at $2, ONNN below a dollar,...), I think it's only fair to also say that I lost all my profits and approx. 50% of my money during a mild market correction in 2004. I was an absolute beginner back then, and loved garbage stocks just as I do today. I still make some of the same mistakes (have issues with greed), but I'm getting better (in protecting my profits) every day...

Just because you are a bull doesn`t mean you are bullish on the American economy.

I agree with Bays 100%.

I don't think economy was any better back in March of 2009, and the market is still up 60% since then. So who cares about your "bad" numbers.

So the real question, in my opinion, is: Are you trying to make money or be right about the economy? If all you are interested in is proving that the economy sucks, then good job, you did it. But how much did that help you in taking the advantage of one of the best market's in history?

Sorry, forgot to address the question of 2003... If you zoome out your chart a bit you will see that all we've had is volatility for the last decade or so. 2003 was just a (temporary) upward inflection point.

brickcityman, OK, so 2003-2007 run was just a bear market rally. Very possible. But, who cares?

Market went up for 4.5 years, and that's what counts. My point is Why miss an opportunity like that because somebody is telling you the future is bleak? There is always something that's wrong with this world.

p.s. Back, when I was a teenager, my friends and I often talked about how the world got all messed up with drugs, criminal, unemployment, AIDS,... that it made no sense for us to (some day) bring children into this world. Everything looked so bad, and was getting worse (so we thought) that children pretty much had no chance of a normal life.

Just to be clear, I have been both a bull & a bear from 2000-present. I was a LTBH bull from 2000-summer of 2008.

From January 2008-August 2008 I sold off approximately 90% of all my stock holdings. I saw the handwriting on the wall and knew that we were headed for a crash.

I began buying again in October 08-March 09 (I bought Apple when it was under $100 for example) because I knew that the market would bounce at some point.

I sold all of my longs between the end of April-end of May (obviously wayyyyyy too early).

I started playing with some short ETFs in June with tight stops. I lost a little bit of money from June-November on these kinds of play, but was spared by my tight stops AND by the physical gold & silver I held.

I was fortunate to time this latest drop almost perfectly and am up close to 40% over the last month using levered inverse ETFs.

I just wanted to set the record straight as you seem to have me pigeonholed as a perma bear. I am incredibly bearish on the market right now, but will be very bullish in the future.

DragonLZ, that's just the whole point. Each of the last couple of recessions have been "solved" by credit bubbles.

JaysRage, I never said we are not creating a bubble again. I also never said this "bull market" won't end in a crash again.

I'm just saying there might be a 2-3 more years (thus my reference to 2003) of this rally left so why miss that opportunity being scared of the crash? Be wise and play safely, but play...that's what I'd say...

p.s.

You said above "I said I have very little money invested in this market". I don't know where did you see/find that. I had some cash for the last few months, but went "all in" again last Friday (left a comment about it on TSIF's blog).

However, the amount of money I have invested in this market is less than the money I made last year. So even if we crash tomorrow, I will get hurt (mostly emotionally), but I'm not gonna get killed...if you know what I mean...

If I listened to bears last year, I wouldn't be able to play with "house's money" right now...

And that's my point. Don't get paralyzed by fear. If you don't play, you can't win...

However, the amount of money I have invested in this market is less than the money I made last year. So even if we crash tomorrow, I will get hurt (mostly emotionally), but I'm not gonna get killed...if you know what I mean...

Geez, that's just about where I am, and that's a pretty bearish stance, IMO. So where is all this uber-bullishness that you're talking about. Are you just trying to get everyone else to throw their money into the market?

I see you point with the markets. But I think you should be careful who you label "permabears". Just because someone is skeptical does not make them a permabear. As far as I know, the only permabear on this site is Alstry. I'm certainly not a permabear but many of my views are aligned with the bearish views expressed on this site. Having said that, I believe that you can make money in any market. In order to do that you must understand both views. You can't be so sold on one side that you cannot appreciate the other, so much so that you label anyone who doesnt agree with you a perma-"whatever".

I like to listen to both sides and determine for myself which side makes the most sense. Then I get to test these theories in CAPS. This back and forth is what makes this site so interesting and keeps me coming back everyday. Will I make mistakes? Sure. But thats the great thing about CAPS. If I make the mistake here I wont make the same mistake in real life. And the more mistakes I make, the more I learn. Thats really what it's all about.

Tastylunch -- Others have already commented on your post, but in my opinion a post of that quality cannot get enough credit. Thanks for the time and the thought that went into your post and the wisdom that it contained. To me, that is what makes this site great. Good investors willing to share their insights with others. Thanks for taking the time. It is appreciated.

Jays, if i go all in with all the cash I have in my portfolio at this point, I'd say that's pretty uber-bullish.

The money I took out of my portfolio last November (when a lot of cash was "created" in my portfolio by triggered stop-loss orders), I took out because I needed it (I never said I got rich by investing in 2009; I still have bills to pay).

In 2009, I was investing money I couldn't afford to lose (which, I know, makes me a gambler). As soon as cash was "created" as mentioned above, I took it out because it was money I was "lending" from my family (I said this in my posts before). If it wasn't for 2009 market, my wife and I would be in bankruptcy court by now (I never said I'm the smartest guy around. Have you seen my comment about 2004?).

The fact that I'm now investing only the money I can afford to lose (but would hate to actually lose) is not bearish, but more a careful approach. I never said one shouldn't be careful in 2010...(but I did say one shouldn't be completely out of it)...

DLZ -- Well, then I'm very glad that things ended up the way they did for you in 2009, and I'm glad that it still helped to make a more prudent investor out of you. There is no question that the market holds familiar parallels to the gambling world. I've spent time in that world many years ago. Sometimes investing is a little more fun for me than it should be as well. My wife is my check and balance. She's a very wise and frugal woman. She has let me build up my short term portfolio, but there are clear lines where I am allowed to take that investing, and it's good for both of us. No matter how successful I may get with that money, our other money is appropriately in "high-yield savings" or invested less aggressively and for the very long-term.

There is a difference between bearish and "all-out". Just like there is a difference between bullish and "all-in". Not all bears are all-out, and just because someone is bearish right now doesn't mean that they were out of the market last year or even 3 months ago. Shades of grey.....rather than black and white.

Based on research I've seen (and personal experience) most rallies start with a massive blast up in junk names, but once that reaches equilibrium rallies typically transition into more fundamentally sound names of rapidly growing EPS companies.

BTW -- portefeuille, I love your graphs in here. The one in particularly about business confidence vs business results is one of my favorites. I admit that is a bullish graph....especially if the May point ends up where it is projected to be.

I usually can't see your graphs, which is a bummer. Whatever you did with these to make them viewable is great. I enjoyed them thoroughly. Thanks for sharing them and your basis for your near-term bullishness....especially for Deutchland. After the recent bad press from China, I'm wondering if Germany might have the healthiest economy in the world right now....perhaps driven by the conservative (savings-driven) nature of the population.

That is not a projection, it is the result of the latest survey (see upper left chart in the first figure of comment #27 above). The May 2010 value for "business expectations" is at around 21 and the value for "business situation" is at around 0 for the "manufacturing industry". So it is right on the edge of the "boom" quadrant (defined by positive values for "business expectations" and "business situation").

portefeuille-- May 21st numbers for business situation in May would by necessity be a projection. Not only are you missing 1/4 of the month, but there is almost certainly a lag in whatever the measure for business situation in order to tally the numbers. At best, you'd be looking at half of May data for that point, which would make it a projection in my book.

portefeuille -- I read the article now....May 10th numbers for the survey, which is more April than May. It's still valuable information, it's just needs to be understood for what it is. As of May 10th, it's looking like Germany is on the cusp of a positive business environment.

DragonLZ: Thank you for your correction that "blood was in the streets" last March. I actually bought in Nov08 when I thought blood was in the streets, but heavily bought materials and commodities which proved to be the low at the time (MOS, EWZ, etc.). I sold out of all my holdings around March of this year and some in Oct 2009. I am watching and looking to buy again when the blood shows up... too early still in my opinion.

First let me apologize. I did not realize you have been active this long. So I didn't mean to overshare what you already knew from experience.For some reason I thought you were newer to the market. It's nice to see another guy who has been around awhile. Seems like most of CAPS players are much newer to the market than we are.anyway my bad.

>>What I wanted to know is was there a writing on the wall back in 2003 that told us a new bull market just started?

For me there absolutely was writing on the wall. It was very easy to see the rate cuts starting to rev up the economic engine. I saw the market bottom out, my own business picked up, access to credit blew open.And more importantly new companies were coming out and they were starting to post some blowout growth numbers.

2003 was one heck of an easy rally to ride imo. I remember feeling very confident in it.

but 2009 was/has been different . True it's been more volatile and larger so potentially much more lucrative. But The bottom was a lot sharper, there was more fake out bottoms starting in november of 08 and the federal stimulus efforts never made it main street. So it never felt to me as if it were supported by actual main street conditions/outlook. At least nowhere to the degree the previous rally had been. 2009 feels more technical, like a massive mean reversion rally.

A lot of people say 2009 was an easy rally to catch. I still don't think it was. I made good money on it , but there were a lot of major headfake bottoms and comparatively little FA news to drive it. And the window of getting in near the very bottom was very narrow.

I'd actually say hitting the 2007 top was a heck of a lot easier than hitting the 2009 bottom. Your margin of error was much greater. I don't think I went hard short until well after the official top (I was going that way in december 07 jan 08) but there as we all know there was plenty of move left.

That's just me though. Other people like yourself seem to disagree with me

.>>Did everybody say "Economy looks great, employment is even better, let's invest like there is not tomorrow." I don't think so.

Well first off if theoretically "everyone" saw it all at once there would be no rally. The market would probably just open insanely high one day and stay near there. :) But more people did seem to see the 2002 bottom, because you had months to do so and there were far less moving parts in the macro picture. There felt like there was a lot more bull chatter near the 2002 bottom than this past one.

Second employment is a well known lagging indicator and it has lagged further and further with each successive rally. So I agree with you its' uses in determining the start of rallies are very limited. I believe Camistocks had an excellent and ignored post about this.

I did mention it because I do think you can see some signs in the labor market as to the longterm quality of the rally. In my view 2003-2007 was a medium to low quality rally but it was higher than this one is so far.What I use unemployment for is validation of the rally as a sign that the recovery is legitimate

.>>but believe me, that's only because you are a bull

.I may have slightly misrepresented myself. To be fair I did short the market in 2000-2001. I'm did say I'm bullish by trade but that's largely because that's the way the wind normally blows. I just never try to fight market momentum much. I consider myself to be an opportunist. 8 years out of 10 that means being a bull. But if the best opprtunities are shorts imo then I'll do that, although I prefer longs just for compounding sake. That and getting reliable borrows on many equities has always been a real pain in the rear.

>>I can bet you any amount of money that these same bears that were "very careful" about the 2009 market were also "very careful" (read: sitting on the sidelines) back in 2003

.I disagree.

A lot of the so called bears today are well known bulls of the past. The quality of bears today is higher than typical, many are very high profile investors. At least that's my perception. Sure there are some guys who are so negative they miss every rally but there a lot of Bears out there in the pro world who i'm more accustomed to seeing playing for the other team.

to be honest I think the whole Bear/bull paradigm people talk about is an oversimplistic one and not necessarily useful one.

>>You know why most retail investors are mad at the market (and you can tell they are very mad if you read bearish posts)?Because they tend to wait for the good news before they get into the market. Unfortunately, that's exactly the time when the smart money starts selling.

I'm with ya there 100%. Most retail investors wait till their own personal circumstances are good, not necessarily when markets conditions are good. That's a bad idea if you ask me. A bargain is either or it's not. Just because you have disposable income available doesn't mean you should be willing to overpay

.I do think people are mad this time for larger reasons though, primarily due to political ethics and employment issues. The bailouts/coupled with high unemployment is a recipe for civil angst.

Oh man I remember that! Ask Jeeves was awesome. Crap that was what ? A one year ten bagger? My favorite vehicle of choice that year was RedHat but yeah tech names got stupid oversold, also got some Apple and later on in the rally the Google Dutch auction IPO. Lots of fantastic bargains to be had in tech, the survivors of the 2000 massacre really had some legs. So much fun.but you know the gov't didn't bail out the tech companies and they no off balance sheet stuff so it was easier for me to figure out their potential worth than the banks...

>>50% of my money during a mild market correction in 2004

honestly DLZ, Given how well you seem to read charts (much better than I), I think if you learned a little FA this kinda thing would not happen to you as badly. if you haven't learned or are unfamiliar with CANSLIM, I think you would like a lot about it. It focuses on rapidly moving stocks, but ones that are driven by earnings not just speculation. The basic thesis is that good stocks have good charts and good fundamentals.

2004 was a rough year for me too (lost 22% in a horrible Q1), but I recovered most of it by the end of the year by switching into higher quality stuff and changing my money management strategy. 2004 was a devil year I still hate it. I got screwed over on my biggest holding by what I'm sure in retrospect was insider trading.

>>Tasty, are you right about this? Why did then presidental candidates in 2008 argue so much about NAFTA (mainly about repealing it or not) if it didn't matter anymore? And why did some of those candidates promise to stop Outsourcing (by giving benefits to companies which stay/employ workers in US), if that was a 90's thing?

Yes I'm absolutely sure. My home is on the frontlines of the NAFTA and CAFTA (etc etc) fallout. I've witnessed its' effects firsthand on a daily basis. Ohio and especially Michigan have never recovered from our manufacturing base getting uprooted over the space of maybe a decade. E.g. Honda now employs more Ohioans than the Big 3 combined. Ohio probably permamently lost 200k+ jobs related to Autos and subsidaries.

I suppose some IT guys started complaining in the aughts when white colalr jobs started to leave too, but the big damage was in blue collar fields.

Obama only brought it up to pander to Ohio voters (we are a perpetual swing state). Of course he can't undo the damage if he tried (e.g. How do you tell Rubbermaid they have to move back to Ohio?) and likely won't even mention it during his presidency. But he wouldn't be the first Politician to mislead / lie to voters to get their vote, even if he knew it was something completely unrealistic. And I'm sure he won't be the last.

Most Ohioans want a past that we'll likely never get back. And many will vote for someone who tells them what they want to hear, since there is desperation in many of our mid-major cities. Youngstown, Akron, Dayton, Toledo all are shrinking rapidly.

I'm hopeful for the future of Ohio in particular the Columbus area, but I'm not hopeful for the future of Unionized heavy manufacturing in Ohio.

Tasty, I hope you are still following this. Sorry it took me so long to get back to you on this.

I did not realize you have been active this long. So I didn't mean to overshare what you already knew from experience.For some reason I thought you were newer to the market.

Maybe the reason you thought I'm new to the market is because I did say a few times that I don't have much investing experience and consider myself a novice.

Even though I started investing in 2002, I still don't know much about investing (fundamentals being the major part of it). I was also almost completely out the market for a few years (after the blow I took in 2004).

...but 2009 was/has been different . True it's been more volatile and larger so potentially much more lucrative. But The bottom was a lot sharper, there was more fake out bottoms starting in november of 08...

Disagree. The market started going up in Nov. of 2002 and kept going up until some time in Jan. of 2003. Then it fell to a new low.

The exact same thing happened in Nov. of 2009 and Jan/Mar of 2010. Both markets reached the bottom ad started a true run in March.

I had a post toward the end of 2009 "Investors are not very smart people" trying to show that rally of 2009 was pretty much a reply of 2003. In that post I also mentioned that both rallies were preceded by a fake rally that started in Nov. of the year before.

honestly DLZ, Given how well you seem to read charts (much better than I), I think if you learned a little FA this kinda thing would not happen to you as badly. if you haven't learned or are unfamiliar with CANSLIM, I think you would like a lot about it. It focuses on rapidly moving stocks, but ones that are driven by earnings not just speculation. The basic thesis is that good stocks have good charts and good fundamentals.

2004 was a rough year for me too (lost 22% in a horrible Q1), but I recovered most of it by the end of the year by switching into higher quality stuff and changing my money management strategy. 2004 was a devil year I still hate it. I got screwed over on my biggest holding by what I'm sure in retrospect was insider trading.

Thank you for the compliment. Eventually, I might take a look at fFA, but right now, I'm afraid it will mess up my "TA game". (I also heard "You can't teach a pig to sing").

I heard of CANSLIM (of course), but I don't use it (never really took the time to read more about it). Btw., I use IBD charts.

I'm glad you got out of 2004 fairly unscratched. I got killed. I had a good 2003 (my stocks were going only up) and thought "this investig stuff is pretty easy". I decided to double the money I had invested by borrowing money (I thought I'm gonna get rich and retire that year), and I did it at the worst time possible.

When I now look at the correction from that time (beginning of 2004), I can't believe how I was able to lose so much. Market went down only 10% or so, but my (garbage) stocks went down 50-70% (similar thing, on a smaller scale happened to me last November. Do you remember that? I sure do love garbage stocks, donn't you think...).

It took me years to recover.

A bad, bad story. Not very proud of my stupidity and greed...

Once again, thanks for commenting. You gave the best answer to my question from this post. Even though I disagree with you on some of the stuff, you opened my eyes when it comes to a few things you commented about.

>>Tasty, I hope you are still following this. Sorry it took me so long to get back to you on this

yeah I am, still can't find those dang studies for porte. No worries man

>>I was also almost completely out the market for a few years (after the blow I took in 2004).

hah I feel you on that! I'll go full cash occassionally when I don't feel emotionally on top of my game

>>The market started going up in Nov. of 2002 and kept going up until some time in Jan. of 2003. Then it fell to a new low.

The exact same thing happened in Nov. of 2009 and Jan/Mar of 2010. Both markets reached the bottom ad started a true run in March.

That is true but the nature of the move was completely different. The amount of Fear and the size of the moves were dramtaically different. there were bears in 2002 but it wasn't grabbing national headlines everyday. The VIX wasn't jumping like it was on a trampoline and companies weren't valued as going concerns one day and bankrupt the next. Wachovia was juts nuts in 2008. Remember that day wheer it went from 60 cents to 6 dollars in two hours?!

The early 2009 was a panic bottom, the 2002-3 bottom was an apathy one. I personally like apathy bottoms better :)

I'll agree to disagree with your interpretation on this one :)

>>Market went down only 10% or so, but my (garbage) stocks went down 50-70%

yeah that's what should be happening now imo. quality usually wins big in year two as people cycle out of junk. Junk blasts are fun but they usually are only good in stage one years of a rally.

>>It took me years to recover.

A bad, bad story. Not very proud of my stupidity and greed...

hey You're alive and you got your bankroll. Don't beat yourself up too bad. That's more than most people get who try their hand at trading.

I've had my fair share of trades blow up too.I've had some bad luck with FAZ/FAS in particular. The dang decay issues messes with a lot of the mechanisms I've tried on it.

You trade long enough it happens to everyone. Paul Tudor Jones lost everything three times I think and now he's what worth 10 billion?

>>Once again, thanks for commenting. You gave the best answer to my question from this post. Even though I disagree with you on some of the stuff, you opened my eyes when it comes to a few things you commented about.

Ditto. I misjudged you myself, you clearly got a knack for reading momentum whether you know or not. And no one is ever going to agree on everything.

Dragonlz, you can teach an old dog a few new tricks, especially if you bait him with tasty treats. You ol' dog has to be motivated. Variants of your volume have been tried before, but it's the quality of the companies that matters in the long run. A company temporarily overlooked by the market or recovering from something that happened can be pretty stable on the rebound. The companies with bad fundamentals will keep doing what the junk stocks were doing for you in 2003. I'm amazed that the junk stocks started jumping dispropportionately again this week on a 2 % rebound.

You might want to give CANSLIM a try. (Canslim.net) is a commercial version of it. Knowing when to let go is probably one of the hardest parts. I didn't subscribe and I don't follow it directly, but Tasty noticed that the principle seemed similar to what I was trying to do here on CAPs with some of my plays. I hit a few on my own that made the CANSLIM newsletter at the same time.

No borrowing for you and no margin trades! Once an addict, always an addict, even if a scared one!!! :)

Dragonlz, you can teach an old dog a few new tricks, especially if you bait him with tasty treats.

TSIF, does Kool Aid count as a tasty treat?

Variants of your volume have been tried before, but it's the quality of the companies that matters in the long run.

I'd just like to make sure that you know my 11-21 and 3-10 are not based solely on volume (volume is just a small part of the "equation"). Some stocks I pick based on volume only, and some based on 11-21 or 3-10.

All my picks that are based on my 11-21 or 3-10 I believe to be high quality companies. When I say high quality, I mean stocks that will go up faster than the market will (even if they have high debt. Btw., debt is overrated :).

No borrowing for you and no margin trades! Once an addict, always an addict, even if a scared one!!! :)

"I'd just like to make sure that you know my 11-21 and 3-10 are not based solely on volume (volume is just a small part of the "equation"). Some stocks I pick based on volume only, and some based on 11-21 or 3-10."

Dragon, you've indicated numberous times that you don't use fundamentals. If your 11-21 or 3-10 methods are strickly charts, OR how long a company has been in business, what thier stock price was precrash....etc, they you'll looking at a snapshop of history that could be drastically changed after a recession.

Even with company's with a long history, if they fail to execute, adapt, or innovate then they may never recover.

I'm more tolerate of debt than most people, but ONLY if there is cash flow to cover it AND IF most of the debt is pre-recession.

Many, many, many, of your picks are issuing new shares to try to get above water. If a company has 10 Million shares and made $1 per share EPS annually precrash, had a P/E of 10 and were desireable to investors AND they then issued 5 Million more shares to try to stay out of water. IF they earn the same revenue (Rare, most are much lower than they were precrash), then their P/E is now 15 with an EPS 0.67.

Beauty is in the eyes of the beholder, but if you are judging from old data, or too much koolaide then you're going to like some of the equities that Tasty and I have labeled junk grade.

Too many investors think that an equity will return to pre-crash levels. Some of your volume and upward price momentum is due to investors "rediscovering" a company is undervalued, that it survived, and yes, they placed too much emphasis on debt. Some are jumping on day trading, and some are jumping in because they don't do their homework.

Granted, if you find a model that is right 70% of the time, you will generally come out ahead. Why not consider tweaking your model, there are more stocks out there than anyone can possibly invest in, and narrow your scope somewhat?

If your 11-21 or 3-10 methods are strickly charts, OR how long a company has been in business, what thier stock price was precrash....etc

None of the above (not based on charts - believe it or not, not on how long has a company been in business, not on what their stock price was precrash).

Many, many, many, of your picks are issuing new shares to try to get above water.

Please keep in mind that many of my picks weren't based on my 11-21 or 3-10.

Why not consider tweaking your model, there are more stocks out there than anyone can possibly invest in, and narrow your scope somewhat?

I hear you.

Right now, I have no time for reading (OK, I'm too lazy), and I'm also trying to find out if my 11-21 and 3-10 really work. In case I find out that they don't, I will most likely take your and Tasty's advice.